Strategic Management

Prof. Santosh Kumar Tiwari

 Strategy?

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“In business strategy is king. Leadership and hard work are all very
well a luck is mighty useful, but it is strategy that makes or breaks a
firm”
The Economist

“The underlying principles of strategy are enduring, regardless of

technology or the pace of change”
Michael Porter

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Chess & Strategy

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Chess!! Similarity
Chess Strategy
Goal Goal
Strength and weakness Strength and weakness
Knowledge of opponent Environmental analysis
Plan before you make move Same
Surprises Surprises
Gambit Long-term
Disciplined approach to resources Same
Holistic Holistic
Time is very important Same

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Chess!! Differences
Chess Strategy
Two players Multi-player
One market May be multiple
Rules are fixed Who will fix the rule, different market
different rules
Can't do merger You can
No internal politics Politics and power
No friction among departments Friction
One stakeholder Many stakeholders
Zero-sum game Can be win-win, cooptation
Direct conflict Winning through customer
No hidden information Mostly incomplete
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 Defining Strategic Management
• Chandler(1962) : “Strategy is the determination of the basic long-
term goals of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for carrying out
these goals”.

• William Glueek : "the unified, comprehensive and integrated plan

that relates the strategic advantage of the firm to the challenges
of the environment and is designed to ensure that basic
objectives of the enterprise are achieved through
implementation process".
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 Defining Strategic Management
• The art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an organization
to achieve its objectives.
• Strategic management consists of the analyses, decisions, and
actions an organization undertakes in order to create and sustain
competitive advantages.
• Strategy is about achieving competitive advantage through being
different.

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Characteristics
• Long-term
• Concerned about the goal of organization
• Unifying the organization
• Take into account the environment
• Required allocation of resources
• It is affected by process and structure in the organization
• It is about formulating, implementing and evaluating
• Competitive advantage
• Art and science both
• Multiple stakeholders

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Multiple Stakeholders

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A capstone is the final stone at the apex of an arch which locks all the other
stones into position, allowing the arch to bear weight. Figuratively, the
capstone refers to the central supporting piece of several elements of a larger
structure, without which the elements of the structure would collapse.
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Where Do We Find Strategy
Would you reveal the strategy?
Vision
Mission
Values
Strategy Statements:

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When do we need Strategy?
• Competition

• Resources are limited

• Complexity/Uncertainty

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 The Strategic Management Model

Where are we now?

Where do we want to go?

How are we going to get there?

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 Link between the Firm and its Environment

THE FIRM THE

• Goals
ENVIRONMENT
• Resources & • Competitors
STRATEGY
STRATEGY
Capabilities • Customers
• Structure & • Suppliers
Systems
• Macroenvironment

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 Stages of Strategic Management

Strategy Strategy Strategy

formulation implementation evaluation

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Strategy Formulation
• Vision and mission,

• External opportunities and threats,

• Internal strengths and weaknesses,

• Establishing long-term objectives,

• Generating alternative strategies,

• Choosing particular strategies to pursue

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Strategy Implementation
• A Strategy is only as Good as its Implementation

• Action stage

• Most difficult?

• Requires a firm to establish objectives

• Allocate resources so that formulated strategies can be executed

• Motivate employees

• Requires supporting culture, structure

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Strategy Evaluation
• “However beautiful the strategy, you should occasionally look at
the results.” ------ Winston Churchill
• Dynamic
• What to evaluate?
• Performance
• Assumptions about external and internal factors
• Objective itself

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Vision and Mission
•Drucker says that first responsibility of strategists:
Developing a clear business vision and mission

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Vision
Apple is so focused on its vision that it does things in a very careful
way
-John Sculley – Former CEO
“A man without eyes is blind, but a man without a vision is dead.”
“Where there is no vision, the people perish.”

“Good business leaders create a vision, articulate the vision,

passionately own the vision, and relentlessly drive it to completion”
Jack Welch- Former CEO GE

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Vision
Goal/Purpose

In response to one query in a shareholder meeting, Tim Cook said, “

We do things for reasons other than profit”
The business of business is improving the state of the world.
Salesforce co-CEO Marc Benioff

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 I think many people assume, wrongly, that a company exists simply
to make money. While this is an important result of a company’s
existence, we have to go deeper and find the real reasons for our
being. As we investigate this, we inevitably come to the conclusion
that a group of people get together and exist as an institution that
we call a company so they are able to accomplish something
collectively that they could not accomplish separately—they make a
contribution to society, a phrase which sounds trite but is
fundamental… You can look around [in the general business world
and] see people who are interested in money and nothing else, but
the underlying drives come largely from a desire to do something
else: to make a product, to give a service—generally to do something
which is of value.
David Packard

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Goal
According to PwC, 79% of business leaders believe that purpose is
central to success.

89 % of executives believe an organization with a shared purpose

will have greater employee satisfaction

Goal/purpose is not averse to profit.

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Vision
• It has two basic functions

• Direction
• Inspire

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Vision
• Answer the basic question-“What do we want to
achieve/become?”
• If things are ideal, then where a firm would like to reach
• It provides big picture
• Should be short
• Should be poetic
• It has emotional appeal (Guide and inspire)
• Authentic not intellectual

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Vision
•The company may not be able to reach it (it is like a guiding star on
the horizon—forever pursued but never reached.)
•Steve Jobs aptly captured it:
•I don’t feel that I’ll ever be done. There are lots of hurdles out
there, and there’s always a hurdle that I’ll never reach in my lifetime.
The point is to keep working toward it.

•Don’t change frequently, but stimulate change

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How to Set?
•It should be customer-oriented
Do not Name Products
•We offer clothes
•We offer shoes
•We offer books
•We make computers

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Do not Name Products
Ford has earlier vision as
“To make the automobile accessible to every American”

Now it has changed to

“To provide personal mobility for people around the world”

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How to set?
Start with the offering (product or service)
Ask four to five times why doing that is important
Example:
Set a vision for a market research company
Ques: What do you offer?
Ans: We provide the most accurate and timely market-research data
Q: Why it is important?
A: It helps customer to have better understanding of environment

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How to set?...
Q: Why it is important?
A: It helps customer to make better and timely decision
Q: Why it is important?
A: It makes our customer more profitable/successful

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Vision: Examples
•Our vision is to be the world’s best quick service restaurant.
(McDonald’s)

•To be the happiest place on earth (Disneyland’s)

•To provide access to the world’s information in one click

(Google)

•To eradicate needless blindness (Arvind Eye Care)

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 Mission
•Vision provides the foundation for mission
•It tells how to achieve vision
•Mission specifies the business or businesses in which the firm
intends to compete (What is our business)
•It identifies customer the firm is intended to serve
•It differentiates firms from other competitors
•Mission may change more frequently

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Mission…
•It should not be too narrow as to allow room for creativity
•Should not include numbers
•Stakeholders
•Provide a basis for strategic objective

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Mission
Be the best employer for our people in each community around the
world and deliver operational excellence to our customers in each
of our restaurants.
(McDonald’s)
To achieve our objectives in an environment of fairness, honesty,
and courtesy toward our clients, employees, vendors, and society
at large.
( Infosys)

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 Vision
It’s about future
What you want to be in future
What difference will create in
world
How it will impact the world
It is more of “why.” Why
company exist?
It inspires
Change is minimum
Help in formulating mission
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Mission
Present
How to achieve vision
What’s make us different. What
is our business?
How it will impact stakeholders
It is more of “how”
Conciliatory in nature
Changes depending upon
circumstances
It is a starting point for strategy
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Benefits
Unifying factor

Message to outside stakeholders: what company is doing and where

it is moving

Motivate employees

Identity

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 Identity
Bill Gates famously told Steve Jobs, after Jobs accused him
of copying the Macintosh:

“Well, Steve, I think there's more than one way of looking at it.
I think it's more like we both had this rich neighbor named Xerox and
I broke into his house to steal the TV set and found out that you
had already stolen it.”

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Identity…
Xerox was actually First to Invent the PC, they just forgot to do
anything with it.
•Ethernet networking,
•Graphical user interface,
•Bit mapping,
•Mouse,
•The world's first laser printer,
•Real Object-Oriented Programming

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Strategic Objective

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Vision and Mission for your company
The bug of entrepreneurship has finally bitten you.
Now, you are ready to launch your start-up.
During your strategic management course, you have
become acutely aware of the importance of a vision
and mission. Before you start, you want to clearly
communicate to internal and external stakeholders
(esp. creditors).

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Environmental Analysis
Reducing the many environmental influences to a coherent pattern

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Lower the distance higher the impact
Lower the distance higher the control
Environment is not just given

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Types of Environment
Static Environment
Past acts as a good predictor of the future
◦ Raw material suppliers, blacksmith

Dynamic environment
Judgemental forecasting methods involving scenario planning
Complex Environment
Many industries, many geographic regions

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SWOT
Strength Weakness
David Brave, confident Weak, unexperienced
Goliath Strong, powerful, ?
experienced

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Industry Analysis

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Value Creation
The concept of value creation is at the core of what a firm does

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 200 is customer perceived value

Consumer perceived value: Buyer’s maximum willingness to pay

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Creating Value
200 is customer perceived value

80 is the cost

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Capturing Value 200 is customer perceived value

160 is retail price

Value captured

80 is the cost

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Potential Entry of New Entrants
Bring volume and desire to capture market share
Two aspects- Barrier to entry and Retaliation
A barrier to entry is any advantage that established firms have over
entrants.
Economies of Scale
Demand-side benefits of scale : E-bay
Capital Requirements Boeing and Airbus

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Potential Entry of New Entrants
Customer switching cost
Differentiation
Government Policy
Other Advantages :
◦ access to the best raw materials,
◦ branding,
◦ location,
◦ cumulative knowledge,

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Potential Entry of New Entrants
Retaliation
Incumbents possess substantial resources: cash, borrowing power
and excess capacity
Incumbent having emotional or prestige
Growth is slow

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Rivalry Between Established Competitors
Depend upon two things: basis and intensity

If many rivals compete on same “dimension” it becomes zero-sum

game

Price is very detrimental to profitability

If competition happens on innovation, advertisement, research it

leads to less profit decrease
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Rivalry Between Established Competitors…
Intensity
Large number of firms :

Industry growth is low

High exit barrier

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Rivalry Between Established Competitors…

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Rivalry Between Established Competitors…
Products and services are identical
The product is perishable, like
Tomato, information, airline or hotel
High fixed cost and low marginal cost

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Bargaining Power of Buyers
Demanding better quality and service (cost up) or driving down
pricing
Size and concentration of buyers
Buyers’ information :
Doctor, Lawyer (Ram Jethmalani charge 25 lakh per hearing)
Standardized products
Switching ability
Buyer can integrate backward - like making their own packaging for
product
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Bargaining Power of Buyers
Significant portion of cost
When quality matters - like investment baking
When buyer is high profile and can add branding to supplier : for
small advertiser fortune 500 company
How critical product is for buyer, microprocessors (Intel and AMD)

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Bargaining Power of Suppliers
They can charge more price, lower the quality or services
There are only a few suppliers.
Suppliers offer products that are differentiated
Lack of available substitute inputs : pilot union.
High switching cost
Suppliers have the threat of forward integration. (generic drug
supplier can be competitors)

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Substitute Products
Substitutes performs same or similar functions
Put ceiling on price
Offer price-performance trade-off
Switching cost to substitute is low
May come from unexpected quarter: GPS navigation devices from
Google map

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Advantage
Understating strengths and weakness (we can compare against five
forces)
Decision about quitting the industry or joining it
Exploiting industry changes
Reshaping the industry by influencing the five forces

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Limitations of Five forces
Defining industry boundary difficult- more fluid
Given the globalization and information technology each industry is
becoming more competitive
No prescription as how to deal with strong forces
Environment in flux

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Environmental Analysis in Uncertainty
VUCA
◦ Volatility, uncertainty, complexity and ambiguity
TUNA
◦ Turbulent, uncertain, novel and ambiguous
RUPT
◦ Rapid, unpredictable, paradoxical, tangled
What is Uncertainty
Prediction difficult
Difficult to Think
Imagine

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Scenario Planning
Scenario Planning: Construct alternative futures in terms of
behaviour of suppliers, competitors and consumers

The worst-case scenario (environment turns very unfriendly)

The best-case scenario (where the operating and general

environments are extremely favourable)

The most likely case scenario (between the two extremes)

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Scenario Planning…
Backcasting
Forces to think more about future
Bridge between present and future
Ambidextrous
Crisis simulation
Time circles around
Learn not only from past experience but also from imagined futures

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Getting Started
Invite the right people to participate
Identify assumptions, drivers, and uncertainties
Imagine plausible but dramatically different, futures
Inhabit those futures
Isolate strategies that will be useful across multiple possible futures
Implement those strategies

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